TAXES DON’T HAVE TO BE SO TAXING
Tax season is here. Most believe that it only occurs once a year, but actually the season lasts all year. Whether for businesses or individual, events continually occur all year long that represent potential tax benefits or blunders, depending upon how they are handled. Although the major events occur from January through April, the remainder of the year should be utilized as the planning phase or preparation phase for the next filing period.
Just recently I had a discussion with a colleague about performing tax services. She proceeded to tell me what I should do during the busy season from January to April, in order to file taxes properly for clients. First she talked about how unfair the tax code is to the average citizen, and then she proceeded to explain how necessary it is to receive a refund. She viewed it as some sort of payback from the government for taking her hard earned money all year. She also talked about maximizing deductions, tax credits, and exemptions. As I listened intently, I waited patiently for her to come to the part about her role as a taxpayer and what she was willing to do to educate herself on the process. As the conversation concluded, I expressed my frustration with trying to educate individuals, who were only concerned with the size of their refund instead of overall planning. My colleague finally admitted that she fell into that category, and that her only concern was that she wanted a refund, the bigger the better. Anything that occurred outside of that reason was to be challenged. In conclusion, we both determined that we want to have the best experience possible. I want clients to be properly prepared throughout the year, and she wants to have a better overall financial experience. At this point I realized to achieve this will take a great coordination of efforts.
There appears to be a great divide that exists between tax preparers and tax clients. Why? For many reasons. The average tax client feels challenged by the complexity of the US tax code, and therefore has created a barrier of distrust concerning this system. They believe the majority who pay into the system are low to mid level wage earners, while the wealthy take advantage of laws written in their favor.
The tax preparers goal is to complete the tax form as accurately as possible, which allows the client to take advantage of all deductions and credits to their benefit. The tax preparer is committed to portraying the information based on the requirements of the US tax code.
How can we collaborate efforts so that everyone comes out on top?
The first course of action should be to clear our minds of what previously existed by way of action plans. It’s clear that what has happened has not worked very well for either of side. A shift in our mindset must occur. Change only comes from within.
Secondly we must take on new habits of behavior. The ultimate goal is to have each person financially solvent and to minimize their tax liability, while taking advantage of any credits or deductions. One must remember that every financial event that happens in our life has a potential direct impact on our tax situation. Start with educating yourself on simple processes like properly filing your W-4.
Third, we must take the necessary steps to plan in advance. Planning alleviates the stress of having to figure out important information months after it occurred. One procedure I’ve trained myself to do is to make a folder at the beginning of each year labeled “Tax File 200_”. As items occur throughout the year, such as donating clothes to Goodwill, or attending tax deductible fund raising events, I keep a copy of the notice or receipt, or whatever evidence is provided, as documentation of the possible deduction. I also make small notations or notes about what occurred and for what purpose. At the end of the year I just refer back to my folder and categorize all the information based on the type of expenditure. This process has helped numerous clients be better prepared for reporting special tax events. But still the trick here is you have to do it yourself.
Once we all make the decision to join efforts, we can all have a better tax experience!
Jacqueline E. Williams
Financial Strategist
THE INS AND OUTS OF OUTSOURCING BOOKKEEPING
Outsourcing can be one of the most strategic management decisions that a small business could make. Daily struggles with trying to maintain operations can be overwhelming for most, and tragic for some. Trying to keep it all together will definitely take its toll on a small operation. A person can only handle but so much before reaching their breaking point. Besides, why would you want to put your business under such unnecessary stress, when you can outsource to alleviate the burdens of having to do it all?
In-House Bookkeeping
Although many small businesses believe it’s necessary to handle their own bookkeeping in order to cut cost, the downside is that managing your books in-house will minimize your ability to focus on the promotion and development of your business. Actually, in the long run, you will end up spending more. The time spent figuring out your debits and credits can be used more wisely and efficiently by allowing a skilled professional to handle the task. They are better equipped to work faster, which saves you money and time, and allows you to spend more time focusing on revenue building activity.
Out-of-House (Outsourcing) Bookkeeping
I can’t stress enough how cost effective this method is, but I will. Not only will you reduce operating costs such as payroll, employee benefits, and employment taxes, the cost savings can be shifted to areas that will promote business development, which in turn will increase revenues. Also, consider not having to spend time recruiting, training and maintaining staff. No more trouble with managing your staff’s behavior and personal issues. Besides, a professional working off site will be less subject to distractions from your office environment.
Outsourcing Abroad
With the rise in conducting business on a global scale, many companies are outsourcing internationally. Countries such as India, Canada, and Mexico, are becoming big contributors to the labor pools of American companies. As international governments relax their regulations and implement educational programs geared towards computer science and technology, the markets have become more competitive. Of course, the decision is very personal in nature and can be controversial. To remain loyal to your local economy versus profit by any means by outsourcing your labor pool to cheaper economies has been a heated debate for quite some time . If you decide to outsource to another country, keep in mind several factors which could affect your relationship, such as, language barriers, potential military conflicts, government regulations, time difference, and cultural differences.
Partnering for your success!
Jacqueline Ford
Financial Strategist
BOOKKEEPER CHOICES-WHO DO I CHOOSE?
Taking charge of who will post your bookkeeping entries
Whose gonna post this stuff? The first of many questions to be asked when trying to determine whose responsibility it will be to head up the accounting function. Many will take the road of the “least expensive” and try to do it themselves. But soon will find out that they’ve bit off more than they can chew. Next thing you know, it’s pushed to the side, and the old attitude of “I’ll handle this later” takes control. Soon afterwards, the paper pile has grown to an insurmountable heap! How do we avoid this scenario from playing over, and over again? Planning is the key to success! Decide whose responsibility it will be to handle this very important function, and delegate, delegate, delegate. But still, “What are my options?” you may ask. And, based on the options available to you, who will best fit this profile?
Local Yokels
These are the professionals in close proximity to your physical location. If you plan on having someone visit your office to service your needs, this can be the best solution. This choice will also help to save on travel charges. A good local professional will be in tune with the markets & economic development in the area. They generally are very familiar with local businesses and their products or services.
A friend of a friend of a friend
You remember being at last year’s barbecue, talking with Uncle Sonny about your problem, and he referred his wife’s cousin’s boyfriend’s daughter, because she just graduated from college with a degree in accounting. Do you choose her? Well, you’d better think twice. Referrals can be a great source of information, but remember to do your homework first. Interview this person and get feedback from other clients or associates in the industry. If you’re still skeptical, then ask for a free trial period of services.
Jack of all trades, master of none!
None other than Me, Myself, and I. We are all familiar with the business owner who tries to do it all themselves. What usually happens is that they end up spinning their wheels trying to figure out something, which doesn’t make absolute sense to them. This is very time consuming and costly. The resources spent in this vicious cycle could be better used in other areas of the business. But what of the business owner who has skills in this area? There is a belief that even the Accountant should have an Accountant to manage his/her records. Stop being “The Jack of All Trades, and Master of None”. Use your talents where they are best suited. For everything else, outsource or delegate to other professionals in the business. Allow those who have the time and expertise to do the job right. In the long run it will be well worth it.
Partnering for Your Success!
Jacqueline Ford
Financial Strategist
Financial Reporting – Give it to me in plain English please!
Financial reporting is the key important concept in summarizing your financial data. It reveals what you’ve done, right or wrong, and shows where your company is headed. Financial reports allow you to analyze your business to determine its proper course of action. From its information you’ll be able to create projections and what-if scenarios, calculate ratios, budget and forecast data. When compiled properly, the data within is a powerful tool for managing your company. Let’s look at some specifics of financial reporting.
THE BASIC STATEMENTS
Listed are the most commonly used statements and their key elements.
- Balance Sheet- this statement is generally referred to as the “Statement of Financial Position”. It reflects the position of a company on a specified date and is comprised of Assets, Liabilities, Owner’s Equity (Capital). Assets reflect ownership of tangible and intangible items. Liabilities reflect amounts that are owed to creditors. Owner’s Equity or Capital Accounts reflect the owner’s investment in the company. It includes owner’s contributions, withdrawals, and accumulated net profits in the business.
- Income Statement- Also referred to as the “Profit and Loss Statement” reflects all the income and expenses incurred for a specified period of time. It calculates the net ending result for the period, whether it’s a profit (positive ending balance) or loss (negative ending balance).
- Cash flow – this statement reflects the flow of cash for a period of time. It reveals where the cash comes from, who it will be paid to, and when it will be paid out. This is one of the key statements used in the budgeting process.
- Statement of Owner’s Equity – this statement summarizes the activity that occurred in the Owner’s Capital section of the balance sheet, which was mentioned earlier. Changes to this account involve owner’s investments, withdrawals, and net change to operations or net profit or loss.
WHO USES THESE STATEMENTS
- Banks and financial institutions – when your company needs capital (money) for expansion or for daily operations, requests for loans or lines of credit are made through banks and other financial institutions. These potential lenders are interested in your company’s ability to make timely payments of principal and interest on loans due. Their decision to lend or not to lend is dependent upon the analysis of the information in your financial statements. Essentially it must be determined that the expected debt does not exceed your expected receivables.
- Creditors/Suppliers – purchasing supplies and materials is not always done on a cash basis. Dependent upon your credit standing and payment history, your suppliers may allow you to purchase on account, or on credit. Suppliers may ask for your company statements to help them in their decision making process.
- Investors – when the time comes that you are looking to expand your operations, but don’t have the necessary funding to do so, another alternative is to turn to investors. Investors will want to know if your company’s financial position is viable. In other words, what’s the potential for profit? A sound well defined business plan with financial projections will reveal the expected potential success.
DON’T TRY THIS AT HOME UNLESS YOU’RE A BOOKKEEPER
With all the pertinent and sensitive information contained in these statements, it’s extremely important that they are accurate. But how do we know this? The typical small business person(s) become very confused with the input and output of data that’s needed to be reflected in these statements. Some may go as far as to educate themselves on basic accounting principles, while others will rely solely on their software program to organize it for them. As I always say, “NO, UNLESS YOU KNOW”. Posting entries without a good understanding of accounting will subject your company to many bookkeeping errors. Not knowing the ins and outs of entries can be more trouble than it’s worth. You will end up spending unnecessary time to correct them, which in the long run, will cost you valuable man hours. Do yourself the favor, if you have any doubts about posting bookkeeping entries, ask the experts, or outsource this function completely so you won’t have to worry about it.
Knowledge is power. Having a basic understanding of bookkeeping entries will give you the confidence needed to be able to ask the right questions when dealing with your statements.
Here’s to your knowing!
Jacqueline Ford
Financial Strategist
Basic Bookkeeping Strategies: Part 3
Posting transactions. But I’m not an accountant
Don’t allow yourself to become intimidated by the bookkeeping process. It can be easier than you think. Understanding the basics of accounting will help you to feel more comfortable with processing your transactions. If you remember in part 1, I gave you the basic categories of classifying your bookkeeping data; assets, liabilities, expenses and income. Go through each of your entries and determine which category to post your transaction to. The majority of your items will be posted as expenses. Simply put, all items paid for with cash, which you do not have ownership of, will be classified as an expense. Items purchased that represent ownership will be classified as an asset. Items purchased on credit, will have an offsetting entry to a liability account. Money received for payment of goods and services will be posted to an income account. These entries are generally posted into some sort of register, such as the check register or bank account register. From there, all the entries will be placed in their proper statements. Still confused? If you’re using software, refer to the tutorial section. It will give you more details on how to post the transaction. Although most software will claim that you don’t’ need to know accounting in order to use it, I prefer to know a little bookkeeping theory, to help make sense of what you’re doing. As an alternative, you might want to consider signing up for a basic bookkeeping training or software course. Even if you decide to outsource your bookkeeping, it’s still best to have a basic understating in order to discuss the status of your books with others.